Rathbones Group Plc (RAT) Earnings Call Transcript & Summary

Good morning, everybody. Nice to see so many familiar faces again. It's another result season, Rathbone's Results 2020 (sic) [ 2022 ] prelims. We're streaming live today. So do -- I would be grateful if you could just check those things called mobile phones, which everybody seems to have these days and make sure that they are either switched off or silent, that would be great. There's also an opportunity to ask questions later. You do need the mic, as much as we will hear you, people are listening digitally, electronically, virtually, whatever you want to call it these days, those people will not be able to, unless you have the mic. So please do remember that. So your team today presenting, I'm joined today by Jenny, our Group CFO. Jenny will give an overview of the 2022 financial results. And later, after I come back for a little bit, I'll be joined by Tony Overy, who's to my left. Tony is the Chief Executive of Saunderson House. And given that it's just over 1 year since we've acquired Saunderson House, we thought it would be useful that Tony gave his perspective on what he's been up to since that acquisition time and also outline his future ambitions for the business. Before we look into the 2022 financial results, I thought it might be helpful to summarize a few things, particularly in terms of how we see now the business positioned more generally. I'll sit back, I think, and get the sound a little more consistent. Can everybody hear me, okay? Firstly, as you can see from the slide, we certainly remain convinced that there continues to be a long-term structural driver set that shape our industry and create further growth opportunities. By the end of 2026, liquid assets in the U.K. wealth management market are projected to be GBP 5.2 trillion. So no shortage of growth, and you can see the ongoing trend in the graph on the right-hand side of the slide. Therefore, we continue to be positioned very well in that market as a leading provider of both investment and planning advice services. Aside from that asset growth itself, there's also the need for wealth creation and savings and all of those needs are growing. And you can see from the chart on the bottom right, if you can read it. I think you've got handouts as well. That shows how longevity is factored into the cash flow planning assumptions being used by the planning industry today. Now in summary, 74% of those plans are now being prepared for a life expectancy of 90 or over. So just interesting to put into context our average client age of 61, which has been a pretty consistent number for us over many, many years. That number will go down a little bit and that of Saunderson House. But of course, all it does is support a growing annuity value of the client relationships we work so hard to build and acquire and maintain. So notwithstanding what have been some quite tough conditions in 2022, we continue to expect that the U.K. wealth market is going to grow consistently into the future for those 2 main reasons. And that will only, of course, drive demand for our services. Let's have a look at 2022. It is my want to look back now and again, but 2022 wasn't the best year to look back, but of course, it does impact our results. And there's no doubt that 2022 had a degree of turbulence, I think you'd find. And of course, the first sign of turbulence we see is in the fund industry. That tends to be the early indicator of investor sentiment and the chart on the left-hand side at the top shows industry outflows in the U.K. retail fund industry in 2022. Quite clear evidence of cyclicality. Our response, of course, is much more muted than that. And thanks to a lot of effort and engagement by our teams in our fund business with our investors being very clear and transparent on our investment process and sticking to our guns, we've still achieved some very positive outflows. Net outflows of 4.5% in RUTM compared to the 13.8% in the industry overall. That placed us for last year, 8th overall in the Pridham report for net flows. And our discretionary and managed businesses also performed relatively strongly, and Jenny will talk about this in a little more detail later. But net inflows of GBP 1.3 billion, an annualized growth rate of 2.6% in those conditions is creditable. We, of course, saw the combined effect of equities and bond markets falling in tandem. And you can see here what the impact has been in terms of the S&P 500 and indeed, the S&P U.S. aggregate bond index. Pretty rare conditions and certainly the challenge for the standard 60-40 portfolio. But our business has performed much more in line with PIMFA balance, as you can see bottom right, where we're much more diversified overall in our investment portfolios and an ability to invest globally has certainly helped cushion the effects of that market volatility. So we stand here today in slightly different investment conditions. I would say cautiously optimistic. It seems to be a rather hacked in phrase, that one. And of course, it goes with all of the natural caution that would associate from any market forecast. But we are in a better position than we were for most of 2022. But of course, our business model is designed to be resilient no matter what those investing conditions are. We're aiming to build client funds, client wealth no matter what the conditions. And I would say, as I look back to 2022, it's been great to see that those conditions that clients have really valued the breadth of the service that we offer and also the reassurance that's provided by our bespoke face-to-face services. And this, of course, combines with organic growth and a revenue margin that's very robust, and Jenny will talk you through how diverse that is these days. But what that does for us is to be able to give us a solid platform to be able to invest. We said at the start of 2022, that's what we would do, and that's what we have done. And aside from Saunderson House and some of the digital, which I'll talk about later on, there's a lot of other expenditure that we thought was absolutely necessary to improve our proposition service and build the capacity to drive future growth. We've very much gone into this cycle very positively on the front foot. And that's also supported by client retention, which continues, as you can see on the bottom chart on the left-hand side there to be very high. And again, that reassurance that we've been able to provide in personal service, highly valued in such difficult market conditions. And financial advisers continue to rate us well in industry surveys. We've received more nominations from our advisers than any other provider for bespoke DFM in the 2022 de facto survey. So overall, I'll talk a little bit later on about improvement in our propositions, but I think it's the breadth and flexibility of those propositions that's so important to future success. So now having the choice of a single investment fund or a highly rated multi-asset fund to one Rathbones delivery across all of our advice and investment services really does help to deliver client choice and flexibility, which we think is the key to unlocking our services and the growth in the future. We really can bring the best to what we have to offer to the fore. We, of course, continue to have all of those propositions complemented by specialist services, whether that's charities, entrepreneurs, financial services professionals and other important affinity groups. Lots of opportunity there as well as sustainable investment to build new affinities and provide growth. And our distribution network itself with 555,555 -- there's not 555,000 advisers. 555, I'm going to say that for a fourth time, professionals who are out there as our distribution network is a very powerful network. And let's not forget that we do have a few thousand, i.e. 68,000 clients that are also providing that distribution network for us. Referral, of course, being one of the most important things that we value. Supported, of course, by a strong brand, Rathbones brand are very well positioned and more work, as you can see, slightly different look and feel to the presentation today. We'll give you an idea of where our brand is heading into 2023. So a very busy change agenda, lots to do, but very well positioned, I think, after what has been a turbulent year. Let's hand over to Jenny now, who will take us through some of the financial numbers.

Thanks, Paul. Good morning to all of you here in Finsbury Circus and to all of you joining us virtually today. So looking at our headline KPIs. Rathbones ended the year at GBP 60.2 billion funds under management and advice, of course, a 11.7% down on the start of the year, but recovering from the GBP 58.9 billion reported at the half year. Operating income is up nearly 5% on 2021 and evidence is the benefit of the diversification in our revenue streams in spite of lower FUMA. At the start of 2022, we made the conscious decision to invest, and that's what we've done. I explained last year how the digital transformation implementation spend would be incurred as operating expenditure and not CapEx. And this, combined with the market impact of lower FUMA has had an impact on profits year-on-year. However, without this investment spend of GBP 16.3 million, the underlying profit before tax would be down just 6%. So as a result of this resilient performance, the Board is recommending a total final dividend of GBP 0.56 per share for the year, taking the total 2022 dividend to GBP 0.84, an increase of GBP 0.03 or 3.7% on 2021. This is consistent with our generally progressive policy and is supported by our strong capital position and robust and conservative balance sheet. Now let's take a look at some of the details, starting with flows. On the left-hand side here, you can see we've got positive net organic flows in our discretionary and managed services of GBP 1.3 billion in the year, a growth rate of 2.6% annualized and an improving trend in the second half, up from 2.3%. So in spite of some difficult markets, we've now had 8 consecutive quarters of positive net flows in core discretionary and managed portfolios. Within these flows, our multi-asset funds continue to prove their all-weather investment start even in these market conditions, attracting strong net inflows of nearly GBP 400 million and an annualized growth rate of 20%. By contrast, the single strategy funds on the right have seen net outflows in the year as a result of the expected pivot away from growth to value. That said, and as Paul mentioned, the net outflows here are only equal to 4.5% of opening FUM for the single strategy funds, which compares favorably with the market. Let's take a look at revenue. Total operating income increased by nearly 5% on 2021 at just below GBP 456 million. The diversification in our revenue streams seen here through the growing proportion of total income now in advisory revenues and interest income has helped offset the market impact of the lower FUMA during 2022. Fees from Investment Management were down 5% and consistent with the MSCI PIMFA Index. This is the index we typically track our aggregate investment portfolio performance. Income from funds was flat at GBP 63 million. And whilst FUM was lower in this area at the end of 2022, the average throughout the year was at actually GBP 250 million higher than in 2021. And it's important to remind all we build daily in the funds business compared to quarterly in the Investment Management business. Commission levels reflect transaction volumes in the year but also reflects our ongoing strategy to move legacy clients to higher-quality fee income over time. And we look at this in more detail on the next slide, where I show you a longer time line of the contributors to revenue. So the top left, the investment margin -- well, the overall investment management margin remains robust with basis point return from discretionary fees at over 60 basis points for 2022. In a falling market, we do expect basis points to increase marginally as you see here. As mentioned on the last page, bottom left, commission reflects transaction volumes, but that are steadily decreasing over time. And to remind all the peak in 2020 was the result of the Speirs & Jeffrey clients transitioning to discretionary fee tariffs. Turning to the top right, the advisory income chart shows the increased contribution from Saunderson House now with a full year of income in 2022 compared to just 2 months last year. Also highlights, we continue to grow in our own Rathbones planning, tax, trust and vision advisory businesses. And moving to the final chart, bottom right, we see the increase in group interest income. But the Bank of England base rate increased from 0.25% to 3.5% during 2022. As a result of our banking license, we're able to benefit from these rising interest rates, and that generated net interest income of nearly GBP 18 million in the year. We're able to put cash and capital to work in the money markets in line with a very conservative treasury policy, which enables us to lock in favorable rates with high-quality counterparties over time. So our interest return, however, is net of paying clients' interest on the cash balances in their portfolios. Rathbones has fully passed on all base rate linked rises throughout 2022 and continued to offer very competitive rates to our clients on the cash in their portfolios. Turning to the next slide in terms of strategic investment and cost management. Total operating expense growth of nearly GBP 44 million is illustrated here in the chart to the right, were GBP 38 million in strategic cost growth, whilst around the business levels of investment and discretionary spend have been managed carefully and have grown below well less than 2%. Fixed staff costs, the bar chart there, and they exclude the Saunderson House and digital elements, increased GBP 13.5 million or 11%. And there are 3 main components in here. The 5% salary award I spoke to you about in July, the full year impact of hiring late in 2021 and new hires in 2022. All of this hiring is targeted at our strategic initiatives. Variable staff costs have reduced by some GBP 7 million, and this decrease is net of a GBP 1.2 million cost of living payment we made to staff in November. Whilst variable staff costs shown in the table is only GBP 3 million lower than 2021, as footnoted, items in here included share-based payments and deferred awards. Please also note at the bottom left of the table, the performance-related pay as a percentage of underlying profit is inflated purely as a link of the profit number this year being impacted by the digital implementation spend. It's key to note deliberate spend on our digital strategy has had no impact on bonus to outcomes. So absent this, the ratio is actually flat year-on-year. Turning just back to the 2 strategic items in the chart. As I mentioned, the full year impact of Saunderson House costs coming through compared to just 2 months of cost last year. And this is primarily staff costs and not the integration costs, which I'll cover later. And finally, the digital implementation strategy includes various achievements in the year, which Paul will cover shortly. At GBP 16.3 million, while spend is slightly lower than we expected, we remain on plan to spend GBP 40 million. Just one final point on capital expenditure. As guided this time last year, as a result of digital expenditure going to operating expenses, the CapEx will reduce and it has. CapEx was GBP 8 million for the year, GBP 2 million when I guided this time last year and just shy of GBP 1 million lower than 2021. So I hope you agree with -- in the environment we've been in, we've managed costs with good discipline while continuing to invest in the business. Let's take a look at what makes up the final elements of profit. Underlying profit before tax is GBP 97 million and 20% -- down 20% and clearly shows the impact of the deliberate investment in the business as well as the impact of markets on revenue. Moving to the items that take us down to profit before tax. The charges in relation to client relationships and goodwill increased due to the 12-month impact of Saunderson House versus just 2 months in 2021. Acquisition-related costs include the second consideration payment for the Saunderson House acquisition, which we made in September as planned, together with the cost of integration, which is progressing well, and Tony will touch on later. The final element, Speirs & Jeffrey deferred payments are now running down and running off and will be complete by 2025. And just turning to the effective tax rate. So effective tax rate was slightly higher year-on-year at 23.5% for 2022. The statutory composite rate for 2023 will be 23.5%. We expect the effective rate to be around 4% to 5% above this as the capital acquisition cost for Saunderson House work through. So to conclude, the underlying operating margin of 21.3% includes our digital implementation spend. Excluding this, the underlying operating margin is mid-20s, it's just shy of 5%. Moving to Slide 14 and our capital position. We remain very well capitalized with a core Tier 1 ratio of 17.9% and a surplus over total requirement of GBP 110 million. During 2021, the FPC announced the return of countercyclical capital buffer requirements for banks and 1% came in, in December, and it will increase to 2% in July. So you can see here that increase in December was about GBP 13.5 million, and we anticipate the July increase to be around GBP 16 million. These buffers can be canceled at any time, but the FPC most recently commented in December and said that July increases were still required. But whilst not entirely welcome, you can see here that we can more than accommodate these buffers. In terms of the overall surplus, we do expect to hold a management buffer over total regulatory requirements. But as Paul and I have said before, this is running slightly higher than we would like, but we are constantly looking at how we place this into our investment into our organic strategy and opportunities for inorganic growth that supports our growth strategy. And finally, on this slide, the dividend increased by 3.7%. And over 10 years, our total shareholder return has outperformed the FTSE All-Share Index. So subject to shareholder approval at the 2023 Annual General Meeting on May 4, and the dividend will be paid on May 9. So turning to the outlook and my final slide. We remain confident as we look into 2023 and as we balance a number of factors, including a general caution about how markets will fare. We expect net interest income to increase as the full-year effect of rates flow through. If current rates are maintained, we can reasonably expect net interest income to be at least GBP 35 million for 2023. Retaining a competitive and employee proposition is expected to result in salary increases of between 5% and 6% of that effect of inflation continues to bear down. Expenditure on digital will remain in line with earlier guidance of GBP 40 million over the course of the program and being incurred through the P&L. We are looking to hold CapEx around GBP 7 million level for 2023 with primary usage being in core technology and property. And as demonstrated to date, I hope, and we remain disciplined in all other discretionary cost management, especially given the inflationary backdrop. On capital, [ just covered ] capital buffer and will increase again in July. So in terms of operating margin, in July, I explained that in light of markets, we guide to a low 20s or underlying operating margin, and that's the result that you see today. In light of ongoing market fragility and the continuation of investment in our digital program throughout the year, we expect to -- we expect to report a low 20s margin for 2023. So just looking further ahead to 2024, we intend to return to an upper 20s or a 27% to 30% operating margin, assuming the adverse market conditions do not dominate. When we set this target just a year ago, the world was in quite a different place. Since then, markets have fallen, reducing our funds under management and hence our fee income. Although cost inflation is much higher than we anticipated, rises in interest rates more than offset this. We also remain confident that there are 3 other key drivers that will contribute to the profit increase required to achieve the upper 20s underlying operating margin. And they are, firstly, Saunderson House revenue and cost synergies expected to have a full year impact in 2024. Our acquisition targets remain at 12% return on capital invested in 2024. Strategic change levels will reduce, settling at a lower ongoing level of investment that is affordable within that upper 20s operating margin. And finally, the ongoing net organic growth in the business will also offset -- or also helped to offset the cost inflation that we're currently experiencing and will continue our cost discipline. So I'll hand back to Paul now, where he'll touch on some of these initiatives in more details, and I look forward to any Q&A later.

Jenny, thank you. So a very solid financial year. Our focus has remained resolute in 2022 and will do into 2023. So as we look forward, we can continue to see us centering around improving our proposition driving growth, inspiring our people and looking for every opportunity to improve our efficiency. Now our aim here is still to be a leading discretionary wealth manager in the U.K. That strategy hasn't changed. We are merely enabling it with all of the things that we've been talking about. Over the next couple of years, we will be managing, as I said earlier, a very busy project agenda. And that's focused on 4 main things: growing and enabling our client-facing teams, integrating technology, leveraging financial planning, and obviously, maintaining the momentum that is already building up in the business. Let's look at these in turn. There's no question at all with my 550,000 -- did I say that again, by 550 very highly skilled, high-quality investment advisers and financial planners that we will continue to recruit more into that space. There's an opportunity to add client-generating resources in the industry today, and we will continue to pursue that rigorously. But also supporting that will be a program of training and that includes technical training as well as sales training and doing a number of other things to support them. So there are 5 key objectives in terms of helping those teams improve are in the slide. To improve our proposition and how it develops, to upgrade our marketing capability, continue to enhance our investment process, continue to build our distribution and, of course, invest in technology that we've talked about. On the former, in 2022, we established a dedicated client function, and that is very much focused on evolving the client experience and keeping that live, relevant, and compelling, improving the services and the clarity of those services we offer to clients and, of course, how we market them as well as, of course, upgrading our digital footprint to promote new client lead generation. Last year, we added Rathbone Reserve as a service for larger and more complicated clients. We've set up a Rathbones Inspire network for entrepreneurs. They were sitting here only last night in the space that you were sitting today and demonstrating that the function itself can add discipline and also build a lot more affinity with a greater number of client groups. We will also support that with much more joined-up marketing campaigns to promote growth. and of course, support it with a refreshed Rathbone brand that we think will appeal to a wider group of clients. A new Chief Client Officer will join us in May of this year, and we're also viewing consumer duty as an opportunity not only to add clarity and discipline to our propositions, but also to support us in building affinity with that wider segment of clients. In terms of investment process, last year, we established a Chief Investment Officer roles in both our Wealth Management and Asset Management businesses. I'm really pleased to say that they're working very well across the business to improve client outcomes. We're continuing to attract some great expertise in this area. And adding to that, working on improvements that will share those investment insights more effectively, enhance the way in which we construct portfolios and, of course, add depth to presentations and client-facing materials that are so important in terms of our overall sales approach. If you add that with specialists and sustainable investment, which we have and we've been doing for 20 years plus and risk -- investment risk enhancements that we're making to our systems, it's a pretty compelling proposition. We'll continue to build distribution and adding resources as appropriate. In 2022, that proposition support helped our distribution by launching something we're calling a Reliance and Adviser service, which significantly clarifies the way in which we deal with the financial adviser community. At the end of the year, we had 171 firms approved on Reliance and Adviser proposition. 35 are currently going through the process. And importantly, that includes 40 brand-new relationships that would not have signed up had we not clarified that portfolio. So there's a lot of momentum in our ability to deal flexibly with third-party advisers. The last point, of course, on the right is digital. So let's come on to that now. It, of course, underpins a lot of what we do, and our strategy has always been to integrate digital with the personal service that we offer. And that's why I thought I would share a little few insights from a recent survey that we asked EY to do for us. Just to sort of help direct how digital fixes in the marketplace. And these are the 3 charts you can see on the slide. On the left-hand side, it's very clear that nearly 80% of the clients that we surveyed stressed the importance of the relationship with their investment team. Maybe a statement of the obvious, but it reaffirms the premium that we've been granted by our clients with our service-based approach and the importance of that strategy to support our client-facing teams. The chart in the middle shows that 75% of clients continue to believe that people, not technology, make the best investment decisions. Now today is not to have the day about how AI is going to beat a human in the future, that's a topic for another day. But this is client sentiment today. And that sort of humanity, if you like, is also reflected in communications, which is on the right hand of that slide. And very interesting to note that only 1/3 of our clients surveyed singularly preferred digital as a form of communication, rather than a [ much more ] mixed picture. Now of course, that will change over time, and empathy for non-digital offerings is obviously going to wane over time. But what it also says is it gives you as an indicator of what pace of change is important as we set our digital agenda. So our approach, if you like, mirrors that exactly. That's what we're trying to do already, integrate technology with personal service, but also reflects that we have some very valuable long-term annuity clients that are with us for a long time, you do prefer that optionality. So we think our strategy is right, and we think that's been reaffirmed by the survey. Of course, providing future flexibility was the #1 condition that we put in place when we chose our supplier for who was going to deal with the digital upgrades and the client life cycle management that I'll come on to. And that, again, is important to manage that empathy gap. So what have we done on digital in 2022 and going forward? In 2022, launching our first phase of InvestCloud as it was an important step forward in being able to deliver what we said. Equally was launching the first phase of Charles River in our Asset Management business, which went in as planned. Some significant enhancements to [ my Rathbones ]. And I did think about sharing this story this morning, and I thought, yes, I would. I just happened to meet one of our investment managers this morning who said I've just had GBP 2 million extra money in from a client who was really pleased with your app. I thought that's just perfect. You couldn't have got the time [ invested ], because I'll just go and tell everybody about that now. But what it does do, it shows that it is also making an impact with our clients in real-time. And enhancements to things that might seem relatively straightforward like client reporting, are also very key, and those have been delivered significantly in 2022. So our focus will remain resolute. InvestCloud, onboarding and client servicing is a big exercise in 2023, and we're on track to deliver that. We also have further enhancements to Charles River. We also have plans to integrate financial planning into our InvestCloud proposition. And of course, to keep flexibility, to keep developing our app-based and client reporting is going to be now part of our agile approach going forward. Beyond that, in 2023, we'll be enhancing private client investment tools. But as spend, as Jenny says, returns much more to business as usual. We remain very focused on the delivery outcomes that you can see on the right of the slide. Technology stability, data quality, improving process, reducing complexity for our people and our clients, freeing up their time as best we can and avoiding costs, Jenny mentioned in her paper, things like that are really important, and obviously, improving client affinity. So that's our agenda. Now one of the other things that we are focusing on, as I mentioned in 2024 is leveraging our financial planning capability. So I thought well, who better to talk about that, would be Tony. So a warm welcome to you, Tony. The floor is yours.

Thank you, Paul. Good morning, everybody. Great to be -- actually fantastic to be here. Paul [ tells me it’s his ] 35th one of these. I think it's my first one. So be gentle with me, please. So Paul talked a little bit about the increased need for financial planning, given the demographics and pension freedom, and growing wealth. So I'm really pleased to talk about the combined financial planning business and what we've achieved since joining Rathbones. And what do we plan? Well, what we want to do is capitalize on operational efficiencies. Firstly, we want to enhance the offering to our clients, provide more opportunities for colleagues as well and focus on long-term growth. And we can do all of that now I'm inside this wonderful business called Rathbones, Paul told me to say that. The acquisitions has provided mutual benefits. This was really important to me as well when we sold the business to Rathbones and mutual that we brought something to Rathbones. And what we brought was a lot of financial planners, a highly qualified, and [ they ] had some experience within the professional service marketplace. We brought something that wasn't there before. And then what Rathbones brought to us and our clients was an enhanced investment proposition. So we got mutual benefits from this, which was very important to me. What have we done? Well, we've created a much broader financial plan in offering and capability. And we now have that across both businesses, both the Saunderson House business and the Rathbones financial planning business. And the proposition aims to offer a variety of services from things like one-off piece of advices, which we call Rathbones advice. And this is, for example, where someone just consolidate pensions, to an ongoing advice service based on different levels of complexity for individuals or families. And so we can serve different people at given stages in their wealth and as they start to grow their family units. We also have enhanced access to investment properties, as I mentioned earlier, that was really important to me. We now have a bespoke discretionary offering. We also had something called a managed portfolio service and single strategy funds. So this is what is bringing to our clients. We've got different services with different clients based on what their needs are. We also as well have access to Green Bank with the ESG offering and also the specialist tax portfolio service, which for some of our clients will be very, very helpful. So as I said, we've got access to different services for different clients and different stages of their wealth. We've built a new leadership team. Even though we still have Saunderson House and RFP, we've built one leadership team that is sitting across the business. And that consists of equal representation from Saunderson House and RFPs, a Rathbone Financial Planning leaders. And what that's done is really strengthened our message to the business that we were about building the best of both. So it feels that we've come together as one business rather than Saunderson House being absorbed -- together to build the best both that's been very well received across the business. And in January, we moved her to Finsbury Circus. So we're really pleased with that. [ We're all down ] on the seventh floor, mixing of our colleagues and then building relationships, which is fantastic. For me, what I've also seen is a fantastic culture here. That was really important to me, the culture of looking after colleagues and looking after clients and all the interactions I've had across the business has demonstrated that to me. So that's something I think is really hard to get right, but it's been demonstrated throughout the whole business. So that's really good for me, really -- and our clients like that and our people like that. So looking forward, what are they going to do to help grow this business? Well, we want to focus on existing clients and also new clients. Initially though, this year 2023, we have a big job in Saunderson House to migrate our clients across into the new Rathbones proposition. So that will be our focus inside the Saunderson House business. We started that towards the latter half of last year. And I'm pleased to say, about 50% of our clients are now in that process and remain on target to achieve integration targets by the end of the year. So very positively being received by our clients. We have existing clients inside Rathbones and also inside Saunderson House. So for the existing clients, what -- with inside Rathbone is that [ SHL ] bought a lot of additional financial planning capability to the business. And Rathbone's financial planning has traditionally sourced its clients from the internal market with inside Rathbones. So we've now added more capacity to provide additional service to the existing Rathbones Investment Management clients. So we want to really focus on that. Also, there is an opportunity to utilize this improved level of planning capacity to, as a catalyst for additional needs with clients being here at Rathbones, I've seen there are additional services, not just investment management and financial planning, they have trust services, they have legal services. So by having a bigger focus on planning, we can expand the conversation across the client bank to hopefully utilize other services inside Rathbones as well. For existing Saunderson House clients, I've talked about migrating them but also when we look at the investment proposition, particularly the bespoke DFM proposition, we didn't have that before. And some of our clients were going elsewhere for that. So there's opportunity to talk to our existing clients about bringing some of their additional wealth and bringing that into the Rathbones family as well. So lots of opportunity for existing clients. On new clients, we want to be a driver for growth and client acquisition. It's what we've done in Saunderson House, we've got out there and brought clients into the business. We have got a reputation inside the [ Big 4 and the Magic Circle ], some of you will know, and we've built a lot of a big client bank in that area. But what we want to do is utilize the Rathbones brand and also their regional network to try and take that outside London. So we'll be planning to understand that market better and focus on that in the coming years as well. And I want to bring this outward-looking focus into Rathbone financial planning. As I said earlier on, they've tended to focus on the internal market, we've now got a growing corridor of young financial planners that want to get out there and build their own client banks. So we want to encourage those so we can actually start to bring more business into Rathbones as well. We've talked a bit about technology and investment there. So I see opportunities in that sector with again, with the different levels of products we now have an investment technology. Traditionally, we've tended to focus on clients who have made it in their careers and accumulated wealth with the new technology and the new propositions enables us to capture clients earlier on in their career and then bring them into the Rathbones family and then develop them as they work through. So we want to utilize the technology stack as well. This business is all about people. We have 2 groups of people, clients and colleagues. Talked about clients. I think we've got a great offering we can enhance that for them. For our people as well, this is a real quality business. And by having that business wrapped around as I think we can retain good quality people and also enables us to bring new people into the business as well. We want to grow our planners and also we want to grow people to support them. Now we can grow planners by organically growing them by bringing them through the business, but also we want to look to bring people in, where they have expertise or something unique that we don't have. So the impervious larger business, I think gives us more opportunity to hold on and bring more people into it. So to finish off, I see many opportunities here. I've come in as a newbie, and hope you can see I'm quite excited and happy about this. There's opportunity for great growth moving forward and a real collaboration across this business we look forward one Rathbones, so bringing people together, working together to utilize our network and identify opportunities. We can utilize these full range of services that haven't been used before to offer more to those to clients so they see the benefit of just coming to us for a service. And I don't think we've really got into teaming up these investment managers and financial planners to go out together and talk about the proposition because if you know, if you're offering a wider proposition, you're more likely to bring clients to the business. So a lot of youngsters coming through and get out there to build their books. So I'm excited about the future and looking forward to continuing to work within the business. Thank you. Back to you, Paul.

Tony, thank you. I didn't tell him to say all that. So that -- that's great. I think there's a word on the final slide, I think that comes to my mind after a lot of the activity that's gone on over the last 3 or 4 years, in particular Rathbones and that is momentum. And there's a considerable amount of momentum wherever you look in the business today, which is very welcome something that we will continue nurture. If I look back over that period, the pillars of the strategy we outlined in a 4 or so years ago, enriching the client and adviser proposition. You can see it in the wheel on the left-hand side here, supporting growth directly, inspiring people and operating more efficiently. I just as important today. And they've also provided a very strong framework that we've attached our initiatives to, to keep focus, to keep journey happy in terms of managing our financial discipline as well. And obviously, all of our stakeholders to improve, whether it's dividends, TSR or whether it's our client experience. So we're continuing to work with that, and I hope we've given you a flavor of some of the momentum that is in the business today. Thank you very much for the time this morning. If I now invite Q&A. If you remember -- there are a couple of things to remember. The first is that we are joined today by our Chairman, Clive Bannister. We're equally joined by a couple of our executives, Andy Brodie is here or maybe just one of our executives. He is on his own in the front if you want to get him later. He's our COO and obviously available to answer questions that you may have as well as, obviously, the panel here. Second thing to remember, of course, is the microphone. So do remember to talk into that. Anyway, so we're open for questions, I think, from the floor first, Stuart.

Stuart Duncan from Peel Hunt. I've got a couple of questions, if that's okay. First of all, you touched on consumer [ duty and whether ] that's an opportunity. Just wondering what changes you might need to implement across the business to meet some of the requirements of that. Secondly, and it was going to be a question for Mike, but if he's not here. On the funds business, just sort of seen some recent trends. Obviously, last year was very difficult, whether there have been any green shoots of recovery in the early months of this year. And then lastly, on Saunderson House, you touched on that migration process. What the sort of planning assumption was around client attrition as you go through that over the next 12 months?

Great. Stuart, thank you. Let me take those in order. There's a lot talked about consumer duty, Stuart, and it's very easy to see this as quite a judgmental framework. It's not got super loads of rules and codes. It's got a lot of principles attached to it, which I think is a very powerful thing generally. And therefore, what we can do, particularly with the personal business -- personal services business like Rathbones is that will help us to focus discipline and give us proposition clarity, force us in a way, [ down the route ] that we were going anyway in order to build affinity with clients. So actually, the way we're looking at it is much more on the front foot from that perspective. Now of course, there's work in the background and our compliance colleagues are working furiously in the background to make sure that some of the sort of governance processes are in place. So there's a little bit more formality, I would say, that comes out of consumer duty that wasn't there before. But I can't say there's an area in that, that we weren't already trying to work, improve client outcomes in any case. So actually, we found it broadly easy to work with the flow there. That said, I think there's a balance to be struck because I think there's a very draconian approach to consumer duty that one could conceive of. And we're trying not to be in that sort of sphere because at the end of the day, our important criteria is in a positive client outcome. And often you can get regulation that does make dents into that client outcome. So obviously, trying to balance that as well. Digital helps, no, you're right. Digital helps. Yes. But that's consumer duty too, unless certainly, my colleagues to chip in on all of that. Just in terms of the funds business, yes, I think if we're looking at the more current trends, look, it's a funds business. So 1 or 2 months doesn't make -- doesn't make a summer as it were. But I think certainly, we're seeing that sort of main impact of 2022 subsiding in the early months of 2023 -- it's -- I wouldn't be here, I think, if I could guess what the outcome is for the year in the funds industry, but certainly see that.

We just had Mike communicate to us well. I apologize you can't be in the room to it. But he's saying, look, there's interest growing in both growth in fixed income. He still does have a general nervousness -- but as that growth in fixed income starts to look a bit more attractive, you can see some green shoots.

That's great. You heard it here first. And it's the wonder of communication isn't that Mike isn't actually here, but thoroughly he is. So Mike, thank you for that. Talk a little bit about Saunderson House and the migration. Jenny, do you want to talk a little bit about the targets and then Tony, maybe a little bit about what's going on?

Yes. As Tony has described, the targets were a combination of revenue and cost synergies, and they remain on track. You'll recall, I described it's heavily on the revenue side because of that wider offering that Tony went to quite a lot of detail, as you just spoke that those planners can farm in our existing base and bringing new clients. So -- and again, in those plans, we always assume attrition we have in our previous deals, same as peers in Jeffrey, you get a little bit more attrition than the average early on because as you contact people, there are some people who are yes, no, and there's some who want to explore further. So it's going as planned. So I'll just reaffirm the targets we set out. Tony can probably elaborate a bit more on what's going on in the migratory.

Yes, in some of the client conversations. Yes, broadly what we do, each client has an annual review or a half-year review cycle. And so the way it works is if we are our clients who got an annual review in March, that group go into the process as we're calling it, which is then on the phone to them, meeting with them, provide an advice and then providing the client sign forms and we're getting the forms back into them transition the assets. So clients are receiving it well. They like the -- as Paul talked about optionality and choice of the investment proposition because we had a [ lengthy ] proposition before. So they can -- they want to engage investment manager or they just want to have a managed portfolio. So they like that optionality. They like -- they're keeping their relationship with their existing adviser because it is -- that's what we are, we're a group of people. We have clients and we build relationships. They're very, very positive about that. And they're also positive where they want to have those additional conversations with investment management because they've got maybe some bespoke in, they can do that. So it's good, it's hard work because it is every single client has to have a conversation to move them across. So my advisers are out there every day, meeting clients and putting through the process, so I am very pleased with where it's going.

Yes. Look, just to maybe remind everybody, certainly in Rathbone's acquisition history, when we've acquired books of wealth management business, it tends to be an exercise of getting client ascent and then on bulk transfer on one date. This is a very different thing that we highlighted with Saunderson House, as Tony said, right at the end, it's a really important point that this is about client-by-client conversation. And that's where it was so important to make sure that we had the proposition that was an improvement. And anything that encourages client engagement on that personal service delivery is really important to us. So there are some downsides in terms of timing, but there are some upsides in terms of client engagement and proposition, which really is reaffirming that rather than there's a bulk transfer, you are transferring me. This is where reaffirming relationships and turn the people or [ the enhance it ] so that always is great. And they come across willingly, I would say about bulk, so... And the fact that we've already had 50% or starting 50% of those conversations across the entire Saunderson House client base, just gives you some indication of the level of industry that's gone on.

Just to wrap that up, Stuart, that's why 2024 will see the full year impact of that migration activity. So some conversations are only being held now and portfolios, as Tony mentioned, there may be DFM portfolios elsewhere that were not [ resolved ] in-house that come into that takes time.

Thank you, Stuart. Other questions? It's Ben Bathurst from RBC. One quick question for Jenny, on interest income. Thanks for the guidance for at least GBP 35 million for 2023. Roughly, what proportion of that GBP 35 million do you expect to come from shareholder funds versus the NIM on client investments? And then second question, which [ I guess ] Paul or you may have already answered somewhat with your anecdote about the app, but do you envisage the GBP 16 million of spend that you've made in '22 will benefit organic growth in '23? Or do you think it will be more sort of a '24 story and this GBP 40 million spend before you start to see the uplift? Let me come on to that, Ben I'll do that.

So cash, how many -- the corporate cash and the client's cash is [ commingled ], hence, the advantages of the banking license are different to an asset manager. So the proportion is primarily from the client cash. That's the largest amount of GBP 2.5 billion, of which we've put to work in 2 ways. We have cash at the Bank of England, earning base rate, and we deploy a conservative treasury policy where we go into the money markets and buy CDs over 6, 12, 18-month time frame, which attract lock in a fixed rate over a longer term. So you'll see much more of this treasury strategy revenue coming through and earning those higher rates through '23 and into '24.

But in short, it's obviously a more complex picture. I think the -- from an InvestCloud perspective, we would see that most of the benefits of that coming in pretty much geared towards 2024 rather than 2023. But the digital program, we're already seeing some of the benefits in our unit trust business from the Charles River in implementation. So that is coming through this year -- this year being 2023. And as I talked about, my Rathbones, those ongoing improvements are already seeing impacts in our cost base today. So I think it's a bit of a mixed picture. But inevitably, when there's such a large digital spend -- digital program, there's naturally a period of embedding into the organization before we can see the full benefits. And we envision that right at the front.

Then just focusing, for example, putting Charles River into the funds business, that was a material cost avoidance investment. If we had not put Charles River in, Mike was banging at my door wanting about 40 extra people to meet the regulatory demand for greater transparency and reporting and data. So that's where Paul says, we've already benefited and double bonus, we hadn't predicted the staff cost inflation on when we set about this a year ago. So that's yielding hidden benefits as well as actual business benefits that the team are feeling day to day with that system in place.

Andy, I don't know whether you'd add anything to that. I think we might need to give you a microphone actually, if we can find one.

Only one other thing to say we've got Rathbones product. We've now got 51% of our client base using it. And what we're seeing is a change in mindset about how they use it. So they're accessing their digital client valuations more often, and that's seeing a genuine reduction in paper costs as well that's flowing through into our underlying cost base.

[indiscernible] isn't cheap these days.

Exactly.

I'm not going to go there. So is there -- are there any other questions, apologies.

It's Rahim Karim from Investec. Two questions, if I may. Just a clarification on the margin guidance and target. Just to say it isn't changed, although you've changed the wording. And if we could just get some clarity on the market environment that we would need to see 27% being delivered versus 30% in 2024.

Okay. I will take the first part and...

And then if I can have a follow-up. I have a second question, which was, I think, Paul, last year, you talked about the benefits of having a banking structure coming through. If you could perhaps elaborate on that a little bit more and how you see those benefits kind of progressing other than obviously, than the NIM uplift that you've talked about?

Yes. Okay. So just everyone's crystal clear. So guiding for 2023 underlying operating margin of low 20s because in light of we have lower FUM, higher inflation, and we're pressing on with our digital spend and mindful of markets. 2024, yes, we slightly changed the wording to upper 20s. It's another way of describing [ 27 to 30 ]. In terms of what markets we would need for 27 around current markets -- and if anyone else has got a crystal ball. Clearly, market upside will help us move through those upper 20s. But again, the markets have changed an awful lot in the last year. This is not about tracking the FTSE 100. There's much more dynamics going on underneath which is why our confidence comes back to those 3 pillars I mentioned, acquisition synergies coming through, reduced spend on strategic investment, and the organic growth coming through is a benefit of both of those 3, give us the confidence we can grow the profit to achieve those margins. Again, we're mindful of the market backdrop. I don't know if you want to add any more, Paul?

Predicting operating margins in an asset management business, you'll know it yourself is a difficult thing to do. What we're trying to do is give you a shape of relatively normal investment conditions. We will size our cost base accordingly, and that's effectively supporting the guidance that we've given. So that's the aim. We're very clear on that. We're confident that we can do it. So -- depending on our full billing dates and our wealth management business, which are the calendar end, they may change around. We're going to see a degree of volatility, which is why we'll always give a range. So there's nothing sinister behind the change of words. We're just trying to recognize the natural volatility that's in the business model. Rahim, on banking structures, I think -- I don't think I was referring last time to lots of new credit product or anything like that. So I would reaffirm that, that is still the case. We don't see that growing materially. But it's a very nice additional service to our clients that does help them retain funds with us and often save them having to realize capital gains. So that's always a very nice ancillary service. What I was more referring to was what Jenny was talking about in terms of NIM, in terms of overall net interest margin. And it's -- we're trying to balance that very carefully with the fees that we charge, which we think are very competitive. What helps us to be competitive in that space is our net interest margin that we're able to in normal conditions, believe it or not, we might even be closer to normal conditions right now. So we just look at that as an overall package. And what that always does is give us a degree of revenue certainty that you won't find in a pure asset manager. So that's effectively what I was referring to, Rahim, nothing more, nothing less. Any other questions? Not even from [ Mike Web ]. I thought [ Mike Web ] might have just thrown another question just to be mischievous, but clearly not. In which case, can I thank you again for your time this morning, much appreciated. And we're around for a conversation and another cup of coffee, if you're up for it after this. Thanks again.